Inflation continued to decline in November 2023, fueled by falling gas prices, but the cost of housing and other necessities remains stubbornly high – continuing to strain household budgets across America.
The closely-watched consumer price index rose 0.1% from October 2022 to November 2023, down from 0.4% the prior month, the Labor Department reported Tuesday. On an annual basis, prices climbed 7.1% in November, lower than the 7.7% year-over-year surge in October.
Gas Prices Provide Relief
The cooling inflation was led by gas prices, which have fallen significantly since hitting record highs earlier this year. Gasoline prices tumbled 4.4% in November – the sixth straight monthly decline.
Compared to last year, however, gas remains very expensive, up 21.7% from November 2021. And after the steady drop in recent months, gas prices appear to have stalled their descent in December.
This table shows the change in gas prices over recent months:
|Gas Price Change
“Falling gas prices have been critical to bringing inflation down from its peak earlier this year,” said Mark Zandi, chief economist at Moody’s Analytics. “But the freefall in prices appears to be over and gas is still far more expensive for Americans than it was a year ago.”
This may limit further easing of overall inflation if gas prices level off at these still-high levels.
Core Inflation Remains High
While the overall inflation rate fell in November, the core consumer price index – which excludes volatile food and energy costs – ticked up 0.2%. Core inflation is now running at 6.0% – well above the Federal Reserve’s 2% target.
The continued high level of core inflation underscores that even with relief at the gas pump, Americans continue to face surging prices for other critical needs – like food, rent and medical care.
Grocery costs shot up 0.5% in November. The food at home index has climbed 12% over the last year.
Housing prices also remain painfully high after rocketing more than 20% earlier in 2022. Rents increased 0.4% in November and are up 7.3% from a year ago.
The stubborn stickiness in rents and other core prices suggest it could take some time for inflation to fully cool to more normal levels.
Fed Focused On Core Price Pressures
The mixed inflation report is unlikely to shift the Federal Reserve from its aggressive interest rate hiking campaign aimed at taming inflation when policymakers meet next week.
While the cooling in headline CPI will be welcomed by the U.S. central bank, the hotter-than-expected 0.2% monthly gain in core prices reaffirms the Fed still has work to do.
Fed Chair Jerome Powell has made clear that policymakers will be watching core inflation measures closely when charting the future policy path. The Fed’s next move on rates will depend on where core inflation heads in coming months – not just the overall CPI.
Most economists expect the Fed will slow its pace of rate increases next week – lifting rates by 50 basis points rather than the 75 basis point hikes delivered over the last four meetings. But the central bank is still seen continuing to tighten policy further into 2023 until core inflation is on a more sustainable downward trajectory back toward its 2% goal.
“We expect the Fed to continue hiking into at least the first quarter, if not the first half, of next year,” said Sarah House, senior economist at Wells Fargo. “Inflationary pressures are easing but they aren’t gone and the Fed will want to see clear and convincing evidence that inflation is headed back down to 2% before they stop tightening.”
The path of inflation and Fed policy will have major implications for financial markets and the overall U.S. economy heading into 2023. Further interest rate increases raise the risk of tipping the economy into a recession next year. But getting prices under control remains the Fed’s top priority for now – given the pain runaway inflation causes households.
So while the inflation picture is gradually improving thanks to falling gas prices, American families will continue to feel the pinch until policymakers can successfully cool the simmering pressures still lurking under the surface. It may take all of 2023 before Americans feel true relief from the inflation headache.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.